Coinbase, one of the biggest cryptocurrency platforms in the world, will be eliminating 20 per cent of its workforce and slashing operating expenses by a quarter amid the troubles currently plaguing the sector, its chief executive has said.
The move, which will affect 950 employees, is a result of the negative chain of events that hit the crypto sector last year, affecting the San Francisco-based company's bottom line, Brian Armstrong said in a statement on the Coinbase website.
This will be the third job cut that Coinbase has carried out in eight months.
It slashed 1,100 jobs last June — about 18 per cent of its workforce at the time — then followed it up with another round of more than 60 cuts in November.
Among the areas of Coinbase that will be affected are sales and marketing, technology and development, and general and administrative, the company said in a filing to the US Securities and Exchange Commission on Tuesday.
The company expects to take a hit of between $149 million to $163 million in restructuring expenses, with about $58 million to $68 million going to employee severance and other termination benefits, the filing showed.
Shares of Coinbase dove 2.7 per cent in premarket trading after being up more than 5 per cent, before recovering to gain 1 per cent at 9.15am New York time. Its stock lost about 86 per cent last year.
Mr Armstrong acknowledged that the crypto industry is “difficult to predict” and that the decision is part of a broader plan to “ensure we can succeed as a business in multiple potential outcomes”.
“In 2022, the crypto market trended downwards along with the broader macroeconomy. We also saw the fallout from unscrupulous actors in the industry,” Mr Armstrong said, warning of potential “further contagion”.
“Therefore, I've made the difficult decision to reduce our operating expense by about 25 per cent quarter-on-quarter, which includes letting go of about 950 people.”
The cryptocurrency sector went through a troublesome year in 2022, marred by company collapses and cyber crimes, dragging the prices of digital assets and investor interest down.
The latest and most notable incident was the spectacular collapse of FTX, which filed for bankruptcy on November 11.
The downfall of the exchange once valued at $32 billion rocked the entire industry, dealing a blow to arguments making a case for the viability of digital currencies and attracting more scrutiny from regulators on how they handle user assets.
FTX founder Sam Bankman-Fried is facing criminal charges in the US.
The FTX crash also came at a time when the collapse of major companies Celsius Network and Three Arrows Capital following massive losses was still fresh in investors' minds.
The collapse of the Luna cryptocurrency and its associated Terra stablecoin in May, as well as job losses, have also added to the industry's woes.
In addition, the sector has become the target of cyber criminals. Crypto-based crime reached its highest level in 2021, blockchain platform Chainalysis said in a recent report.
Illicit addresses received $14 billion over the course of the year, almost double the $7.8 billion recorded in 2020, the New York-based company said.
In March, more than $600 million was stolen from Ronin Network, a side chain built for the play-to-earn game Axie Infinity. More than $30 million has been recovered, it was reported in September.
“Overall, it is difficult to say that the worst is behind us when it comes to crypto and that all bad actors have been flushed and that regulation is where it should be,” Naeem Aslam, chief analyst at Avatrade, said in a note on Tuesday.
Mr Armstrong, however, displayed confidence that the cryptocurrency sector will recover, saying that Coinbase has survived several bear markets over the years by “using this process”.
“We also reduced headcount last year as the market started to correct, and in hindsight, we could have cut further at that time,” he said.
However, he cautioned that the current bear market is the first time the company has seen a crypto cycle coincide with a broader economic downturn, “but otherwise it is similar”.
“As we examined our 2023 scenarios, it became clear that we would need to reduce expenses to increase our chances of doing well in every scenario,” Mr Armstrong said.
“There was no way to reduce our expenses significantly enough, without considering changes to headcount.”
All affected employees will be notified on Tuesday, said Mr Armstrong.